Spotify, and how the internet has disrupted the music industry

Artists can be a temperamental lot. And particularly for those in the music industry – both musicians and record companies – you might argue they’ve good reason to be testy. A third of the population are illegally downloading music, physical music sales have been falling for some time – by most readings the situation looks grim.

Modern offerings like iTunes and (new-ish kid on the Australian block) Spotify have emerged to challenge traditional distribution and sales channels, offering artists some compensation, but they’ve yet to convince everyone.

London-based producer/musician Jon Hopkins recently articulated his dissatisfaction with the state of affairs in a stinging tweet aimed at Spotify.

“Got paid £8 for 90,000 plays. F**k Spotify,” he twote. At first glance this seems quite a reasonable reaction, but British music writer David Hepworth disagrees.

On his blog, Hepworth asks how much it would take to make Hopkins happy:

How big would the cheque have to be to make Jon Hopkins think it was worth persevering with them. Double? Triple? Ten times bigger? At what point does it seem about the right sum of money? Presumably at a point where Spotify decide they no longer want to deal with the Jon Hopkins of the world and will stick to Lady Gaga.

And it’s a good question. Hopkins must remember that of those 90,000 plays not one involved a listener actually forking over his or her hard-earned cash specifically in order to own one of Hopkins’ tracks.

Hepworth goes on to explain that Spotify is less an alternative to buying a copy of a song (either digitally or physically) and more akin to radio.

Nobody knows anymore what the numbers signify. Presumably those 90,000 plays aren’t the equivalent of 90,000 plays on a radio station big or small. (With traditional mechanical payments you get a lot more for having your song played on Radio Two than you would for having it played on a small local station.) Presumably 90,000 represents the number of times any one individual has accessed the stream on which the artist’s song can be found. What’s the average number of individuals it would take to generate that kind of activity? This 90,000 presumably includes a handful of people who listen to one song obsessively and a lot more people who just click once out of curiosity and never go back. It’s not 90,000 fans. It’s not even 90,000 listeners. It’s 90,000 clicks.

If you sold 90,000 records you might expect to have done quite well. And you’d have reason to believe that you might be on your way to selling 250,000 records. You’d be some kind of a hit. If you’d had your record played just once on a radio station with 90,000 listeners you’d expect to get, well, eight pounds?

Regardless of its model, one thing’s obvious: Spotify is disrupting old-school business models in almost the same way Napster did back at the turn of the millennium. The difference is it’s doing it legally. Since its launch in 2008, Spotify has been changing consumer behaviour and altering the monetization of the music industry.

The rise of internet TV and virtually instant e-books means people are used to getting things on-demand. Why take an hour-long trip to JB Hi-Fi to pay more for an album you’re only buying for the first three tracks, when you can download or stream it to your computer speakers for free?

Spotify has taken advantage of Generation Y’s appetite for the instantaneous, and the universal desire to get something for nothing, and created an (optionally) subscription-free music streaming service with a digestible user interface.

It’s hard to deny that Spotify and co. (read iTunes, AmazonMP3 and Grooveshark) are having an adverse effect on CD sales. But isn’t that the natural progression of things?

I have a wall full of CDs, but I can’t remember the last time I took one out and played it. It’s just so much easier to stream it on Spotify. (Vinyl is slightly different – it has a tactile nature and retro appeal, which might explain the popularity of skeuomorphic design.)

It isn’t that the music industry doesn’t know how to respond, it’s that its approach to revenue raising simply doesn’t align with the model Spotify offers.

The music industry could be leading the charge into the digital era; embracing new ways of making money for recording companies and artists, not – as it stands – providing a somewhat lacklustre example for its impressionable little brother, the publishing industry (part one of this three-part series).

The music industry has responded to this brave new world of digital music streaming by making live performances and commercial tie-ins its central revenue streams, rather than music sales and radio plays.

This means that only bands that can attract large audiences – and are big enough to interest big commercial partners – can succeed. It also means that the concept of ‘selling out’ is no longer so toxic to young bands, who seem to embrace the commercial side of the music industry. This is perhaps at the expense of more political – and controversial – bands (you don’t see many bands like Pussy Riot in the West nowadays).

Spotify isn’t the beginning of the end for the music industry. And it’s definitely not revolutionary: if iTunes is the logical replacement for physical CD sales via high street stores, Spotify is a replacement for radio stations. It’s just the latest chapter in a constantly changing story. The music industry landscape is being altered – both by the industry itself and external players like Spotify – and it remains to be seen who will prove more influential.

Richard Parker is the head of digital at strategic content agency Edge, where he has experience working with leading brands including Woolworths, St George and Foxtel. He previously spent 12 years in the UK, first at Story Worldwide then as the co-owner and strategic director of marketing agency Better Things.